Posterior blastomere development in C. elegans has previously been shown to be dependent on the transcription factor PAL-1, a caudal-related homeobox protein. PAL-1 is necessary for both major cell fates arising from the posterior, namely hypodermis (skin) and body wall muscle (striated muscle). To understand how PAL-1 executes these two fates, and to identify other transcription factors in the hierarchy, we studied the effects of Wnt and MAP kinase signaling on PAL-1 function. [unreadable] [unreadable] Our studies revealed that Wnt-MAP kinase signals, from an undefined source, work to toggle the function of PAL-1 between the binary fate decisions of skin versus muscle. As seen in other early cell lineage decisions in C. elegans, the end effector for this signaling is the TCFLEF-type transcription factor POP-1. A simple combinatorial code of PAL-1 protein with high levels of nuclear POP-1 results in skin development whereas low nuclear POP-1 with active PAL-1 results in muscle development. [unreadable] [unreadable] To tease out the transcriptional output of PAL-1 in directing muscle development, we focused on potential downstream target genes of PAL-1 encoding transcription factors. Based on previous studies by other groups, and our own microarray analysis, we assayed the functions of three candidate factors that were likely important for myogenesis; HLH-1, UNC-120 and HND-1. Using genetic mutants in these genes alone, or in combination, we found that loss of all three of these factors was necessary to prevent muscle development. We further showed that these factors can both cross-regulate each other and that HLH-1 positively auto-regulates itself, providing a molecular mechanism to ensure that once triggered by PAL-1, these transcription factors continue to function and drive downstream gene expression needed for muscle differentiation and function.